PROPERTY TAX REFORM FROM A BUSINESS POINT OF VIEW
(excerpted from a speech given March 5, 2007 to the Port Angeles Chamber of Commerce)

There is no easy solution to fixing our property tax problems.

Freezing property values will not necessarily lower your property taxes.

But what it will do - is give you a degree of predictability.

And, it is important to understand that freezing property valuations does not affect funding for your services. It is revenue neutral. Because Initiative 747, which freezes levy increases at 1% means revenue districts only receive the amount from the previous year, plus 1%.

As a businessperson, you want to do all you that can to improve business and ultimately increase your income.

If you own your property, how do unpredictable increases in property taxes affect your bottom line?

Under the current system, if you own the property where you conduct your business, or when you lease your commercial property, you have no way of gauging from year to year how much that increase is going to affect your profits.

Of course, many factors affect your bottom line: the cost of labor and materials is definitely an important part of the mix.

And, so is attracting top candidates to fill available positions.

Any community wants to attract the best. The best doctors, the best attorneys, the best teachers, the best marketing services, whatever.

When you head hunt from afar, one of the factors a new employee considers before accepting your offer - is cost of housing.

You hear a lot of talk about housing affordability - which of course is a factor whether buying or renting.

But the issue of property tax in the equation is rarely addressed.

As increasing property taxes eat into your profits, that money has to come from somewhere. It very well may affect your ability to offer incentives to keep your old employees - and what you can offer to attract new ones.

What happened several years ago when the world discovered Telluride can be likened to what is happening on the Peninsula. Eventually only the rich could afford to actually live in Telluride. But someone had to build it and run it, and at one point carpenters and other service personnel were actually living in caves outside of town because they could not afford the rent.

After you have set the world on fire with your entrepreneurial efforts, I assume one day you will all look forward to retiring.

Or, maybe you will have no choice: ill health could force you to retire.

And along with retirement usually comes the loss of your ability to substantially increase your income.

The law in Washington state makes it nearly impossible for you to retire. Because you have no way of budgeting for property taxes - one of your biggest living expenses.

You may plan to stay in your home for your long-term quality of life. Do you realize you will be paying taxes on that property’s full value over and over again, year after year.

Certainly your property’s appreciation will have increased your net worth.

But if you just want to hold on to your piece of the dream - it is only on paper.

Most of us will complain about the IRS at one time or another.

But not even the federal government is so unfair as to tax you on profits you are not making use of.


As the owner of a business, you may wish to contribute when it comes to others less fortunate than you.

There are some wonderful organizations out there trying to help people grab their piece of the American Dream.

Habitat for Humanity is one.

However, when that property appreciates, and it is rare that most properties will not appreciate over time, there is a good possibility the recipient of this generosity will be unable to meet their property tax obligations.

Again, there is no perfect fix for our property tax problems. We favor freezing property values.

One argument against this approach is - it sets up the following situation where one family could be paying a different amount on their property tax bill than their neighbor.

There are two identical homes which sit side by side.

Mr. A bought his home ten years ago for $100k and is now retired.

Mr. B is in the prime of his prime earning years and is looking to buy the home next to Mr. A’s. The asking price is $500k.

Now Mr. B has a choice to make. Can he afford the mortgage on this new home? And the insurance. And the upkeep. And - can he afford to pay, at least the current year’s taxes?

But poor Mr. A does not have a choice. He is retired and, he no longer has the ability to get a new high paying job to pay for his taxes.

The retired person is a cork in the ocean when it comes to the real estate market.

And for that matter, Mr. B will eventually be in the same boat.

Same product. But time has affected the purchase price.

Let me use another example.

In 1969, a Volkswagen cost $2000. Today, that same car approaches $30,000.

Can you make a legitimate complaint about the rise in price?

A reasonable person will agree it is just accepted things cost more as time goes by.

The property tax system in Washington state is broken. There are laws providing over 200 exemptions to correct for property tax inequities. Which as you know, exemptions simply spread the tax burden onto those who do not qualify for exemptions.

Now, there are legitimate reasons for exemptions. Some of those exemptions are deferments. Assessors will tell you, most will not take advantage of that option because it just a nice word for a lien on the property.

Having a lien on your property is a personal choice. And up to this point, has only been available to low income seniors.

This year, the legislature is considering some 30 bills dealing with property taxes. And at least on paper, some of our legislators are attempting to give us some relief.

There was a bill being considered - SB 5737 - proposed by an assessor which would have allowed seniors to freeze their property values regardless of income. Unfortunately, that bill and the other thirty plus bills have been unsuccessful in getting through the legislative process, leading one to surmise the legislature is only giving lip service to property tax reform.

There is a trend in the insurance industry right now that has them shaking in their boots: seniors are selling off their life insurance policies to investors.

If we do not give the 70 million baby boomers who are about to retire, and those of the “greatest generation” who have already joined the ranks of the retired, some chance at property tax relief, some reassurance they will be able to stay in the homes they have worked so hard for all their lives, who do you think they will turn to to bail them out?

The bottom line is, no matter how you feel about our property tax laws, the legislature has not allowed the people of this state a say in the process for forty years. At the very least, we should all have the opportunity to make up our own minds with our votes.